Develop Your Skills With Simulated Trading

Think you can beat the Street? Have you spotted a company you just know is going to go through the roof? Got a gut feeling about a hot initial public offering?

Or maybe, you're new to investing and trading and need an introduction to how buying and selling securities works—an exploratory deep dive that doesn't involve real money.

Before you bet the farm, or any amount, for that matter, you can build your investing skills and test trade theories without risking any hard-earned funds.

Welcome to the world of stock market simulators.

What Are Stock Market Simulators?

Stock market, or trading, simulators are online systems that allow investors to practice their stock-picking skills without investing real money.

Investors log on, set up an account, and get mock money with which to make simulated investments.

Some brokers require investors to open and fund an account to get a full-featured simulator. Others provide limited features without opening an account.

Review all your options to find a trading simulator that meets your needs and expectations.

The best simulators can support trading in equities, ETFs, options, and futures, with limit and stop orders, and short selling. They can also adjust for most corporate actions such as stock splits, dividends, and mergers.

They're available at many online brokers and offer investors tools used by experienced traders, such as stock screens, charts, live data feeds, and technical analysis tools. They can also provide educational resources.

Benefits of Stock Market Simulators

For Beginning Investors

For novice investors, a simulator can be a gateway to investing and the mechanics of trading. They can learn about basic investment concepts, reading stock tables, the impact of market volatility, and much more.

News features can provide insight into real-world events, such as corporate scandals, earnings forecasts, and the effects that upgrades or downgrades issued by Wall Street analysts have on stock prices.

They're also a great introduction to investor research. Simulators generally offer a host of research tools, including historical prices, performance charts, price-earnings ratios for specific securities, and historical trading data for various industries and indexes.

For Experienced Investors

Trading simulators can be valuable tools for experienced investors, as well. They can use them to test-drive complex trading strategies in a safe environment.

Investors can analyze the results of a simulated trading strategy over time to see its advantages and pitfalls. They can refine investment concepts and skills before launching them in the real world.

Simulators offer experienced investors the tools to monitor IPOs, track trading volumes, and build customized screens based on technical and fundamental criteria.

Learn From Others

Some online sites run stock market simulation competitions that give players an opportunity to win real money. These competitions can be a great way to pit your strategies and skills against those of other investors.

Perhaps even more valuable, you can learn what works and what doesn't in a more intense environment.

So, even if you don't find your name at the top of the leader board at the end of the competition, you'll still be able to observe and learn from the winning strategy.

Whether trading on your own or in a competition, simulators also can teach you about the importance of leaving your emotions out of trading and investing.

Your reactions to your simulated portfolio's changing value can inform how you'll deal with similar price movements when trading in a live market with real money.

Test What You Learn Elsewhere

With simulators, you can test your interpretation of investing information provided by others. If you already have a brokerage account, read the daily updates and the monthly or quarterly newsletters in which your broker offers outlooks on the markets, the economic environment, and government activities.

It may even recommend specific trades that you could simulate.

Stream the financial news to enhance your knowledge and to learn what stock-picking gurus recommend. Then, test out that information by placing trades for your simulated investment portfolio.

Simulators can even teach you about the importance of leaving emotions out of trading and investing. How you respond to positive and negative positions might give you a sense of how you will react to price movements in a real-life trades.

The Limits of Simulation

There is no doubt that simulators are good tools, but even the best of them can't fully replicate the the real thing. Generally, they offer fewer securities and more restricted trading parameters than the actual global financial markets.

A simulator may not allow trading in foreign stocks or penny stocks. There may be a time delay in the data feeds, which means your trade won't be executed instantly, as in real life. For example, Investopedia's free simulator has a 15-minute time delay.

Mistakes made in simulated trading might be easily forgotten. Try not to let that happen. You want to keep such mistakes in mind when you start trading live. They should be part of the learning experience that you'll put to work throughout your investing years.

The Bottom Line

Stock trading simulators are online systems offered by many brokers and some financial websites that give investors the opportunity to buy and sell securities without putting real money at risk.

Simulators can help users to learn the mechanics of trading, sharpen their trading skills, and test out investment strategies in a financially worry-free market environment.